Real-Money Funds Set to Dump $100 Billion of Stocks on Rebalancing

Analysts Notebook wrote a column · Dec 19, 2022 03:54

The world's biggest money managers are set to unload up to $100 billion of stocks in the final weeks of the year, according to JPMorgan and StoneX Financial.

The pension and sovereign wealth funds that form the backbone of the investing community typically rebalance their market exposures every quarter to achieve a mix of 60% stocks and 40% bonds. As equities gained relative to other asset classes over the latest quarter, money managers would be forced to sell them to meet the target allocation.

Real-Money Funds Set to Dump $100 Billion of Stocks on Rebalancing

By the end of December, sovereign wealth funds could be selling roughly $29 billion in equities while US-defined benefit pension plans would need to shift up to $70 billion from equities to bonds to meet their long-term targets and bring them back to September levels, JPMorgan estimates.

"The recent equity market correction and bond rally are consistent with the rebalancing hypothesis," said Vincent Deluard, a macro strategist at StoneX, who believes that some of the rebalancing has already happened during the past week. "Investors had to sell stocks and buy bonds to get back to target. It makes sense for this to continue until the end of the year."

$Dow Jones Industrial Average (.DJI.US)$ $S&P 500 Index (.SPX.US)$ $Nasdaq Composite Index (.IXIC.US)$

Source: Bloomberg

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